ELLIOTT WAVE ANALYSIS - Latest Market Commentary
Stock Indices
In recent updates, we have highlighted various short-term permutations in the way price development is unfolding for U.S. stock indices, particularly the S&P 500, Dow Jones (DJIA) and Nasdaq. The S&P’s relative underperformance compared to European indices is understandable given the new monetary easing policies of the European Central Bank. This is maintaining a bearish S&P wave count that began from the late December high of 2093.55 with next key resistance slightly### below, around 2075.00+/-. Should the S&P trade to these levels during the coming week, then stage price rejection and a subsequent reversal signature, then such action would confirm a bearish outlook for the next few months with interim downside targets returning to the Oct.’14 low of 1825.00+/-. Equally balanced is the more bullish scenario that will be adopted upon a break above 2093.55. This describes an ongoing five wave impulse advance that began last October from 1820.66 with upside targets to 2257.49+/-. At this stage, our preferred scenario remains with the bearish count whilst European indices are closing in on original upside targets which are only a few percentage points above current levels. Our benchmark Eurostoxx 50 index retains upside targets towards 3475.00+/-. How this reacts once reached will clarify the S&P’s ongoing action for the next few months. In Asia, the Shanghai Composite index continues higher but its upward trajectory is showing momentum loss forewarning of a more imminent top formation during the next few weeks. India’s Nifty 50 has reached interim upside targets towards 8900.00+/- but failure to stage price rejection would confirm ongoing upside momentum to 9550.00+/-. In Japan, the short-term pattern confirms a bullish approach for the next couple of weeks with min. upside targets towards 18500.00+/-. 26th January 2015
Currencies (FX)
Because of the current news-flow, we are focusing on the Euro/US$ and skip the US$ in this issue. The strong fib-price-ratio convergence area between 1.1487 and 1.1445 has been exceeded after the ECB announced its quantitative easing plan. This brings into focus two different scenarios. The first depicts the currency pair having traded into strong support at 1.1160-50 which is based on the weekly and intra-hourly time-frame data. Although the actual low stretched a bit lower towards 1.1115, it is still in the right territory to begin a sustained advance from here that would validate the completion of primary wave A or cycle wave B. ###The second scenario admits of lower levels to be achieved during the next weeks – a fib. 61.8% extension of the 1.6040-1.2329 decline measures to ultimate downside at 1.0479 that is closely matched by a fib-price ratio based on the decline from the Dec.’14 high that projects to 1.0544. This second count has the advantage that it maintains the previous fib-price-ratio targets for completion to 1.1460 but incorporates the point of ‘5th wave extension’ as the ECB news prolong downside momentum. Meanwhile, Sterling has traded into idealised downside at 1.4988 with a traded low of 1.4951. Now, a reversal signature is imminent – Sterling is very close to its July ’13 low of 1.4813 and a break below there would invalidate the upside momentum in force from there. In fact, a decline below 1.4813 would render the entire sequence from the Aug.’09 high of 1.7044 as an expanding flat correction that is engaged in its finalising ‘C’ wave with subsequent downside measured to 1.3858+/- in the months ahead. Preferential counts however maintain the bullish outlook – in Elliott Wave terms, a deep 2nd wave counter-trend decline (as here from 1.7192) is nothing extraordinary which reinforces the possibility of upside acceleration from current levels as a larger 3rd wave. US$/Yen has not gained much upside during the last trading sessions but is still in a good position to begin its 3rd wave upside acceleration. This is also in line with the Nikkei’s forecast which is projected to trade into new highs in the weeks ahead. Only a break below critical support at 11556 (the Dec.’14 low) would invalidate an immediate upside progression as it would confirm the December high of 12185 as the completion of primary wave 1 and thus reinforce a sustained decline in the months ahead. 26th January 2015
Bonds (Interest Rates)
Mario Draghi’s statements in last week’s ECB meeting produced little effect on markets during his delivery, but it was only later during questioning that he revealed the Central Bank’s intention to include short-dated maturity bond-buying in its portfolio of quantitative easing that begins in March. This was a surprise because most short-dated bond yields are already trading below zero 0.00%. Traders are ###falling over themselves to buy what is still available prior to the commencement of the ECB’s programme. This has driven yields lower once again with the benchmark DE10yr yield trading to 0.306%. This is marginally below our interim downside target of 0.333% but we still expect to see some counter-trend retracement begin soon as a five wave impulse decline is close to completion unfolding from last July’s high of 2.051%. Meanwhile in the U.S., the US10yr yield has undergone a counter-trend upswing from the mid-Jan.’15 low of 1.706 ending last week at 1.943. The trend remains downwards but this rally could extend a little higher towards 1.990 in the short-term. 26th January 2015
Commodities
It’s been exactly one week since gold stretched above the April ’14 ‘overlap’ level of 1277.30 that defined the finalising sequence of its multi-year corrective decline that began from the Sep.’11 highs. Gold mining stocks such as Newmont Mining and Gold Corp. have surged higher from mid-December lows, themselves crossing above key resistance levels along the way. This significantly increases the probability that a major directional change has occurred for precious metals, ###confirming a new multi-year uptrend has begun the final phase of the ‘inflation-pop’. One cautionary note however that dampens our bullish enthusiasm is the fact that the GDX and bullion gold have just traded into interim overhead resistance at 23.22 and 1307.40 respectively and are losing upside momentum into these levels. Now this may be just coincidence prior to some profit-taking retracement with continued advances during the coming week – but there does exist some risk of a more meaningful corrective decline back inside the trading range whilst prices remain below these resistance levels. The risk of a deeper correction will be averted should prices break above during the next few trading days. Silver has likewise traded into interim resistance at 18.49+/- and is also open to some short-term risk of retracement declines although an examination of its substructure from its secondary low of 15.54 suggests more upside to come. Crude oil has withstood a stronger US$ dollar during the last week with prices remaining above the mid-January low of 44.20. This is a bullish sign as the preceding upswing to 51.27 clearly unfolded into an intra-hourly five wave impulse pattern. Last week’s secondary low at 45.35 must now hold to maintain next upside targets towards 56.20 and later to 62.10. 26th January 2015
